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During a review of the 2004 audits performed by PricewaterhouseCoopers, the Public Company Accounting Oversight Board found audit deficiencies at nine of the accounting firm’s clients.

The PCAOB said the deficiencies included failures by the firm to identify or appropriately address errors in the issuer’s application of generally accepted accounting practices (GAAP). The deficiencies also included failures by the firm to perform, or to perform sufficiently, certain necessary audit procedures, it added.

The Board said that in some cases, the failure to perform a procedure may be based on the absence of documentation “and the absence of persuasive other evidence,” even if the firm claims to have performed the procedure.

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In one example supplied by the PCAOB — it did not provide names of clients — the board said PwC failed to obtain sufficient competent evidential matter to support its audit opinion.

For example, it stated that PwC failed to perform sufficient procedures to test revenue and accounts receivable, failed to test the fair value of warrants and stock-based compensation issued in two significant transactions during the year and failed to perform adequate testing of the valuation assertion for inventory.

In a letter to George Diacont, director of the PCAOB’s Division of Registration and Inspections, PwC responded that took the board’s findings seriously and plans to incorporate its recommendations in its audit efforts.

“We have continued to implement enhancements to our audit methodology and delivery, including conducting extensive training, making significant improvements to our technology, increasing our own internal review processes and hiring more resources,” the firm stated, adding that it already implemented many enhancements in the past year and a half that weren’t reflected in the 2005 inspection of the 2004 audits.

The Sarbanes-Oxley Act requires the PCAOB to conduct an annual inspection of each registered public accounting firm that regularly provides audit reports for more than 100 issuers. The Board said it only released portions of the report.

The inspection of PwC took place from July 2005 to March 2006. The inspection team performed field work at PwC’s national office and at 16 of its approximately 65 practice offices in the United States.

The team conducted the procedures related to the review of the eight functional areas primarily at the firm’s National Office. The inspection team also conducted procedures at certain of the Firm’s practice offices.

The PCAOB stressed that Auditing Standard No. 3 provides that, in various circumstances, including PCAOB inspections, a firm that has not adequately documented that it performed a procedure, obtained evidence, or reached an appropriate conclusion must demonstrate “with persuasive other evidence” that it did so, and that oral assertions and explanations alone do not constitute persuasive other evidence.

For purposes of the inspection, an observation that the firm did not perform a procedure, obtain evidence, or reach an appropriate conclusion may be based on the absence of documentation and the absence of persuasive other evidence, it added.

When audit deficiencies are identified after the date of the audit report, PCAOB standards require a firm to “take appropriate actions” to assess the importance of the deficiencies to the firm’s present ability to support its previously expressed opinions, and failure to take such actions could be a basis for disciplinary sanctions.

The PCAOB stressed that in response to the inspection team’s identification of deficiencies, PwC in several cases had performed additional procedures or supplemented its work papers.

It also said that in some instances in which the inspection team identified GAAP departures, follow-up between PwC and the company led to changes in the company’s accounting or disclosure practices.

In some cases, the deficiencies identified were of such significance that it appeared to the inspection team that the firm, at the time it issued its audit report, “had not obtained sufficient competent evidential matter” to support its opinion on the issuer’s financial statements. In some of those audits, that conclusion followed from the omission, or insufficient performance, of a single procedure, while other audits included more than one such failure.